Your Right to Know

A fracking-tax bill that supporters say will provide long-term clarity for companies coming to
Ohio to drill in the state’s shale regions passed a divided Ohio House yesterday.

The bill sets a
new 2.5 percent severance tax on shale fracking, a rate Democrats decried as a
giveaway to the oil and gas industry, and as an overall tax shift because much of the revenue will
go for an annual income-tax cut that, they argue, favors the wealthy.

“We think it’s OK to be fooled by the oil and gas industry,” said Rep. Robert F. Hagan,
D-Youngstown. “Why are we so afraid to make them pay their fair share?”

But as the fracking industry tries to emerge in Ohio, Speaker William G. Batchelder, R-Medina,
said the state doesn’t want to do anything to chase away companies.

“Maybe in the future there will be sufficient productivity to entice other carriers here,” he
said after the 55-35 vote. “I’m hopeful we will attract more companies once there is some certainty
in what the tax may be.”

The bill would raise up to $173 million a year by 2019, based on estimates by the nonpartisan
Legislative Service Commission. At the high end, the estimated revenue is about $96 million more
than current law — 10 cents per barrel of oil and 2.5 cents per MCF, which is 1,000 cubic feet of
natural gas. At the low end, current law would raise about $21 million more than the new tax.

The 2.5 percent rate is lower than the 2.75 percent proposed by Gov. John Kasich, and the House
version allows for more deductions and credits, such as allowing drillers to deduct
commercial-activity tax payments from their severance-tax liability.

The bill also exempts the first $10 million in gross receipts from a well, so companies can
recover costs from drilling the well, said Rep. Matt Huffman, R-Lima.

The bill also reduces the current severance tax on traditional vertical wells.

The bill now heads to the Senate, where action might not happen until after lawmakers return
from summer recess, potentially in November.

Senate President Keith Faber, R-Celina, said his chamber needs time to study the issue.

“It’s difficult for us to spend two weeks on something the other chamber has spent almost two
years on,” he said. “I think we need to pass something on the severance tax. What that something
is, is the question.”

Faber declined to comment on the specifics of the bill, saying, “I’m neither disappointed nor
excited.”

The House approved an amendment by Rep. Brian Hill, R-Zanesville, to increase from 15 percent to
17.5 percent the amount of severance-tax revenue that will be earmarked for communities with
fracking operations. But Hill and some others wanted more.

“My disappointment is more with me, that I wasn’t able to get more accomplished for the area
that I serve,” Hill said.

The bill earmarks $15 million to the Ohio Department of Natural Resources for fracking
regulation, plus $3 million each for orphan-well cleanup and geological mapping.

Jack Shaner of the Ohio Environmental Council praised those earmarks as a way to provide proper
drilling oversight and speed up plugging of orphaned wells.

Remaining funds would go for an annual income-tax cut. “As this industry grows … that will be a
significant amount of money,” Huffman said, noting that one estimate puts it at $316 million over
five years.

That would average $63 million a year, about a 0.5 percent annual tax cut.